HAPPY KIDS INC.

                               AMENDMENT NO. 1 TO
                    CHANGE IN CONTROL SEVERANCE PAY AGREEMENT

     THIS AMENDMENT NO. 1 (this "Amendment"),  dated as of July 1, 1999, to that
certain CHANGE IN CONTROL  SEVERANCE PAY  AGREEMENT,  made as of the 12th day of
January, 1999 (the "Severance Pay Agreement"), by and between Happy Kids Inc., a
New York  corporation  (the  "Company"),  and Stuart Bender,  an employee of the
Company (the "Employee").

                                    Recitals:
                                    --------

     WHEREAS, the Company and the Employee, in order to provide for the payment,
in certain  instances,  of  severance  pay to the  Employee  in the event of the
termination  of  Employee's  employment in  connection  with certain  changes in
control of the Company, have entered into the Severance Pay Agreement; and

     WHEREAS,  the Company and the Employee  intended  that such  payments  made
pursuant to the Severance Pay  Agreement  would qualify under the  provisions of
Section 280G of the Internal Revenue Code (the "Code") for exemption pursuant to
Code Section 280G(b)(5); and

     WHEREAS,  the Company and the Employee now desire to clarify such intention
in the Severance Pay Agreement by way of this Amendment thereto;

     NOW, THEREFORE, such Severance Pay Agreement shall be amended as follows:

                                   Agreement:
                                   ---------

     In  consideration  of the premises and the mutual  covenants and conditions
set forth herein, and for other good and valuable consideration,  the receipt of
which is hereby acknowledged, the Company and the Employee agree as follows:

     Section 1.  Amendment.  The Severance  Pay Agreement  shall be amended such
     ---------------------
that Section 3A shall be added thereto, to read in its entirety as follows:

"Section 3A.  Tax Issues.
------------------------

     (a)   Excise  Tax  Exemption.  The  Severance  Amount  payable  under  this
Agreement is assumed to satisfy the requirements for an excess parachute payment
exemption under Section 280G(b)(5) of the Internal Revenue Code (the "Code") and
the regulations thereunder. If the Severance Amount payable under this Agreement
is deemed  not to meet the  requirements  of Code  Section  280G(b)(5),  or such
successor  Code Section  thereto,  then Section  3A(b) of this  Agreement  shall
apply.


<PAGE>

      (b)  Determination  of  Alternative  Severance  Amount  Limit.  Subject to
Section 3A(a) herein, but notwithstanding any other provision of this Agreement,
if  any  portion  of the  Severance  Amount  or any  other  payment  under  this
Agreement,  or under any other  agreement with, or plan of the Company or any of
its  affiliates  or  subsidiaries  (in the  aggregate  "Total  Payments")  would
constitute an "excess  parachute  payment",  then the payments to be made to the
Employee  under  this  Agreement  shall be  reduced  such  that the value of the
aggregate  Total  Payments that the Employee is entitled to receive shall be one
dollar ($1) less than the maximum amount which the Employee may receive  without
becoming  subject  to the  tax  imposed  by Code  Section  4999.  However,  such
reduction  in  Severance  Amount  shall  apply if,  and only if,  the  resulting
Severance  Amount with such  reduction is greater in value to the Employee  than
the value of the Severance Amount without a reduction, net of any tax imposed on
the Employee pursuant to Code Section 4999.

      For purposes of this Agreement,  the terms "excess parachute  payment" and
"parachute  payments" shall have the meanings  assigned to such terms in Section
280G of the Code,  and such  "parachute  payments"  shall be valued as  provided
therein.

      (c) Procedure for Establishing Alternative Limitation. Within fifteen (15)
calendar days following delivery of notice by the Company to the Employee of its
belief that there is a payment or benefit due the Employee  which will result in
an "excess parachute  payment",  the Employee and the Company,  at the Company's
expense and  discretion,  shall obtain the opinion of the Company's  outside law
firm, which sets forth: (1) the amount of the Employee's  annualized  includable
compensation for the base period (as defined in Code Section 280G(d)(1); (2) the
present value of the Total Payment;  and (3) the amount and present value of any
"excess parachute payment".

      In any event that such opinion  determines  that there would be an "excess
parachute  payment," such that a reduction in the Severance  Amount would result
in a greater net benefit to the Employee (as provided in Section 3A(b)  hereof),
then the  Severance  Amount  hereunder or any other  payment  determined by such
counsel to be  includable  in Total  Payments  shall be reduced or eliminated as
specified  by the Employee in writing  delivered to the Company  within ten (10)
calendar  days of his receipt of such opinion,  or, if the Employee  fails to so
notify the Company,  then as the Company  shall  reasonably  determine,  so that
under the basis of  calculations  set forth in such  opinion,  there  will be no
"excess parachute payment"."

      Section 2.  Severability.  Should any  clause,  portion or section of this
      ------------------------
Amendment be unenforceable or invalid for any reason,  such  unenforceability or
invalidity shall not affect the  enforceability  or validity of the remainder of
the Amendment.

      Section 3.  Assignment:  Successors in  Interest.   This Amendment,  being
      ------------------------------------------------
personal to the  Employee,  may not be assigned by the  Employee.  The terms and
conditions of this  Amendment  shall inure to the benefit of and be binding upon
the successors and assigns of the Company, and the heirs, executors and personal
representatives of the Employee.

      Section 4.  Waiver.  Failure to insist upon strict compliance  with any of
      ------------------
the terms,  covenants  or  conditions  of this  Amendment  shall not be deemed a
waiver  of  such  term,   covenant  or  condition,   nor  shall  any  waiver  or
relinquishment  of any  right or  power  hereunder  at any one or more  times be
deemed a waiver or  relinquishment  of such  right or power at any other time or
times.

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<PAGE>

      Section 5.  Governing  Law.   This  Amendment  shall  be  governed  by and
      --------------------------
construed in accordance with the laws of the State of New York applicable in the
case of agreements made and to be performed entirely within such State.

      Section 6.  Arbitration.   Any controversy  or claim  arising out of or in
      -----------------------
connection  with this  Amendment  shall be settled by  arbitration in accordance
with the rules of the  American  Arbitration  Association  then in effect in the
State of New York and judgment upon such award rendered by the arbitrator may be
entered in any court having jurisdiction  thereof. The arbitration shall be held
in the State of New York. The  arbitration  award shall include  attorneys' fees
and costs to the prevailing party.

                                  * * * * * *




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<PAGE>

      IN WITNESS WHEREOF, this Amendment has been executed by the undersigned as
of the date first above written.

                                    HAPPY KIDS INC.



                                    By:/s/ Jack Benun
                                       -------------------------------------
                                       Jack Benun,
                                       President and Chief Executive Officer


                                    THE EMPLOYEE


                                    /s/ Stuart Bender
                                    ------------------------------
                                          Stuart Bender








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